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United India Life Assurance Co., Ltd. and ors. Vs. S. Krishna Rao and ors. - Court Judgment

LegalCrystal Citation
SubjectInsurance
CourtChennai
Decided On
Reported inAIR1934Mad411; 152Ind.Cas.965
AppellantUnited India Life Assurance Co., Ltd. and ors.
RespondentS. Krishna Rao and ors.
Cases ReferredDrake v. Trefusis
Excerpt:
- - 2. what the difference between the two schemes would be when given effect to though the amount of expenditure for both the schemes was restricted to 3 lakhs is clearly stated in ex. srinivasa ayyangar, that it having been decided by the pull board of directors that the building should be erected at a cost of 3 lakhs the duty of deciding which kind of building should be constructed may well be delegated to a committee as it has been done in this case and their decision cannot be be questioned on the ground that it has not proved acceptable to the entire body of the directors. 16. i am satisfied that a clear distinction between building houses and buying house property is indicated in the articles and that we should give effect to it in interpreting article 116-a(1-i). 17. in support.....madhavan nair, j.1. defendants, 1, 2, 4, 5, 6 and 9 are the appellants. plaintiff 1 is a share-holder and plaintiff 2, a policy holder in the united india life assurance co., ltd., defendant 1. defendants 2 to 9 are the directors of the said company, of whom defendant 9, mr. m.k. srinivasan, is the managing director.2. this appeal arises out of a suit instituted by the plaintiffs for an injunction restraining the united india life assurance co., ltd., and. its directors from spending the money of the policy holders on the construction of a building on a site purchased by the company at calcutta from out of the policy holders' trust fund.3. in september 1932, the united india life assurance co, bought at calcutta from the calcutta improvement trust a vacant site valued at about rs. 91,000.....
Judgment:

Madhavan Nair, J.

1. Defendants, 1, 2, 4, 5, 6 and 9 are the appellants. Plaintiff 1 is a share-holder and plaintiff 2, a policy holder in the United India Life Assurance Co., Ltd., defendant 1. Defendants 2 to 9 are the Directors of the said company, of whom defendant 9, Mr. M.K. Srinivasan, is the Managing Director.

2. This appeal arises out of a suit instituted by the plaintiffs for an injunction restraining the United India Life Assurance Co., Ltd., and. its directors from spending the money of the policy holders on the construction of a building on a site purchased by the company at Calcutta from out of the policy holders' Trust Fund.

3. In September 1932, the United India Life Assurance Co, bought at Calcutta from the Calcutta Improvement Trust a vacant site valued at about Rs. 91,000 odd for the purpose of erecting a building on it. On 12th October 1932, a unanimous resolution was passed by all the directors of the company that a suitable building be constructed on the said plot at a total cost not exceeding three lakhs of rupees and that the amount actually expended or incurred for such building but within the limit of three lakbs of rupees be paid out of the company policy holders' Trust Fund : (see Ex. A). At the same meeting a committee of five persons was appointed to take the necessary steps for the commencement, construction and completion of the building by approving plans, designs, inviting tenders, etc., and paying from time to time out of the policy holders' Trust Fund amounts payable in respect of the building but within the sanctioned limit of three lakhs of rupees aforesaid. It appears that in pursuance of the resolution in March 1933, the company obtained estimates for putting up a building of five storeys at a cost of rupees 2,75,000 and that this scheme was approved by the committee appointed by the directors. But this scheme was however, abandoned in favour of another one according to which the construction of the building would cost rupees 4,29,000. On 17th July 1933, the committee resolved unanimously

that the limit of the coats of the building at Calcutta be fixed at Rs. 4,10,000 in place of the limit of three lakhs,

and that the necessary sanction or approval of the Board in respect of this increased limit should be obtained : see Ex. C. On 2nd August 1933, a meeting of the directors was held, but at this meeting defendant 3, Mr. P.N.S. Ayyar, was absent. The meeting approved of the recommendation of the committee that the limit of the cost of the building be fixed at Rs. 4,10,000 in place of three lakhs and the necessary sanction asked for was accorded. From the marginal note of the minute it appears that the question was raised:

Is it not necessary to obtain the approval of the absentee member of the Board of this resolution?

4. Below this note we find the following one signed by the Managing Director it would be duly sought.

5. The question raised in the marginal note referred to above has obviously reference to Rule 116-a(1-i) of the rules relating to the administration of the policy holders' Trust Fund. This rule says that 'the moneys, funds and assets of the policy holders.' Trust Fund shall be invested by the Directors from time to time in any or all of the following investments and subject to the conditions or limitations mentioned herein-below : (a) by a unanimous resolution of all the directors for the time being of the company (1) in the purchase of (i) 'house property.' As the resolution passed on 2nd August was not the resolution of all the directors owing to the absence of Mr. P.N.S. Ayyar, it was communicated by the Managing Director on 14th September to the absentee director by letter, Ex. H, in which his opinion in respect of the resolution aforesaid was solicited. On 16th September 1933, Mr. P.N.S. Ayyar, replied, giving reasons

that the proposition does not appeal to me and I am therefore unable to agree to the Board Resolution No. 2370 dated 2nd August 1933.

6. In consequence of his objection the building committee on 27th September 1933, resolved : (1) that the scheme should be re-arranged so as to make the total expenditure fall within the original sanctioned limit of three lakhs; and (2) that Messrs. Ballandie, Thompson and Mathews, architects, should be requested

to have the matter re-planned in such a way that the construction is to be proceeded with as far as the limit of three lakhs will allow (the said sum to include the architects' fee), but that the foundations and steel stanchions be so planned and laid as to eventually make the building, by further additions, a six storeyed building as per the architects' design See Ex. K.

7. On the same date the Managing Director wrote to the architects authorising them

to have foundation prepared as for a six storeyed building and also the steel stanchions for the portions which can be constructed within the present limit of cost but of such strength as should eventually be capable of supporting six storeyed building.

8. The committee also asked them for detailed suggestions and views as to the kind of building and accommodation that could be provided within the revised limit of three lakhs : see Ex. L. On 5th October the architects telegraphed that the report would follow in a few days : see Ex. M. On 7th October 1933, referring to Ex, M, the Managing Director telegraphed authorising Messrs. Ballandie Thomson and Mathews to proceed with the foundation : see Ex. N. On 10th October 1933, a meeting of th' Full Board of Directors was held to examine the situation. At this meeting. Mr. P.N.S. Ayyar delivered a note for consideration in which he stated:

It is not within the powers of the committee to sanction the erection of a three storeyed building at a total cost of 8 lakhs. The building contemplated by the relative Board resolution was one of five storeys.

9. This objection was overruled by the Board by a majority of 6 to 2 and the action of the committee was approved. The two dissenting members at the meeting were Messrs. P.N.S. Ayyar and R. Rangachariar, another Director. This suit by the plaintiff's was instituted on 23rd October 1933. In support of their suit, the plaintiffs alleged two grounds : (1) that the resolution of the Board of Directors to invest money of the policy holders' Trust Fund in house building is ultra vires as it contravenes Rule 116-A(1-i) of the policy holders' Trust Fund Deed, read with Articles 105-G and 175 of the Articles of Association ; and (2) that while the original proposal was to construct a building for 3 lakhs of rupees the subsequent proposal of the Board by a majority to construct a building with foundations as for a building costing 4 lakhs odd of which 3 lakhs ought to be spent for the present, is wholly improper and illegal. Defendant 3, Mr. P.N.S. Ayyar, supported the plaintiffs. Defendants 2, 4, 5, 6 and 9 oppose this suit stating that the resolution of the Board is intra vires and that the action of the Directors in ordering the constructing of a building with foundations as for a building which would ultimately be a six storeyed building - costing Bs. 4,10,000 is proper. Defendants 7 and 8 filed affidavits supporting, neither party. On the above contentions two issues were raised before the City Civil Judge : (1) Whether the resolution of the Board ?of Directors passed on 12th October 1932, sanctioning the construction and equipment of a building at a total cost not exceeding 3 lakhs is ultra vires? This issue, shortly stated, raises the question whether it is competent to the Board of Directors even by their unanimous resolution to invest money belonging to the policy holders' Trust Fund in constructing a building when the Articles of Association authorised them to invest money only in the purchase of house property. (2) If the resolution is not ultra vires, is the action of the majority of the Board of Directors to put up a building at a cost of 3 lakhs but with foundations and steel stanchions as for a building that would ultimately cost Rs. 4,10,000, illegal and improper? This issue raises the question whether the original scheme as modified at the last meeting of the directors can be accepted having regard to the fact that two of the directors did not approve of the modification. On both the issues the learned City Civil Judge found against the appellants and in the result the plaintiffs' suit was decreed as prayed for. In order to succeed in the appeal the appellants must obtain a decision in their favour on both the above points. If either of the points is decided against them the appeal will have to be dismissed.

10. I propose to deal with issue 2 first. According to Rule 116-A (1-i), money of the policy holders' Trust Fund can be invested in the purchase of house property only by a unanimous resolution of all the directors. The original resolution was that a suitable building be con-struoted and equipped at a total cost not exceeding 3 lakhs out of the company's policy holders' Trust Fund. This no doubt had the approval of all the directors and would be intra vires of their powers under Rule 116-A(1-i) if constructing a building would amount to 'purchasing house property.'

11. The next resolution of the Board of Directors was to put up a building with foundations as for a six storeyed building which would ultimately cost 4 lakhs odd though for the time being it restricted the amount to three lakhs, that is, the amount sanctioned in the original resolution. This resolution, as already observed, did not have the unanimous support of the entire body of directors inasmuch as two of them, Messrs. P.N.S. Ayyar and R. Rangachariar, dissented. The question is whether the later resolution can be enforced having regard to the fact that it was not supported by the unanimous consent of the directors. On behalf of the appellants it is argued that inasmuch as the amount of expenditure with respect to the building is restricted to 3 lakhs and the resolution sanctioning the construction of a building spending that amount had the approval of the entire Board of Directors, it is not necessary to secure the approval of the full Board once again for putting up a building with that amount.

12. On behalf of the respondents it is argued that though the later resolution restricts that expenditure to 3 lakhs, the building that will be erected in pursuance of that resolution must necessarily be different from the building that was contemplated by the original resolution and this being so, it cannot be said that there was unanimous opinion for the purchase of house property amongst the directors to make their resolution legal within Article 116. Shortly stated, the argument of the respondents is that there must be unanimity of opinion amongst the directors not only as regards the amount that should be invested but also as regards the form and shape of the building and unless there is such unanimity no building should be put up. It is clear that the building that will be put up in pursuance of the later resolution is bound to be different in various respects from the building that was contemplated to be pat up under the original resolution. This was clear to the minds of the directors who passed the later resolution, for the committee requested the architects to have the matter replanned, that the foundations and steel stanchions should be so planned and laid as to eventually make the building by further additions a six storeyed building: see Ex. K, para. 2. What the difference between the two schemes would be when given effect to though the amount of expenditure for both the schemes was restricted to 3 lakhs is clearly stated in Ex. K itself. In para, 1 the committee states:

The only question therefore for consideration is whether the building should straightaway be constructed on that basis (that is. on the plan involving the expenditure of 4 lakhs odd) or whether the building should now be finished half-way, the remaining being left over for completion at a later time. It was hoped that the former course would still be feasible after discussion with Mr. P.N.S. Ayyar. If however such a course should not be feasible, the latter course be adopted and the building be proceeded with within the total cost originally sanctioned of 3 lakhs.

13. This statement in the resolution makes the distinction clear beyond any doubt. If it is decided by the unanimous resolution of the directors that a house should be bought for a definite amount, can it be said that the objection of some of the directors to the specific house selected for purchase by the majority can be overlooked and that the selection of the house is validly supported by the unanimous opinion of the directors, because there was their unanimous support to the decision that a bouse should be bought investing on it a certain amount? I think not. In my opinion there must be unanimity of opinion amongst the directors not only with regard to the expenditure of money but also with regard to the item of property that is sought to be bought. It is not enough to say by a unanimous decision that a house should be bought investing a certain amount of money, but there must be unanimity with regard to the house also that is to be bought. In other words, there should be unanimity of opinion both with regard to the amount of money that should be spent and also with regard to the house that should be purchased by the expenditure of that amount; if not, it cannot be said that there was unanimity of opinion of the directors for purchasing house property as contemplated by Rule 116 of the rules relating to the trust fund.

14. In this connection I muse refer to another argument of. Mr. Srinivasa Ayyangar, that it having been decided by the Pull Board of Directors that the building should be erected at a cost of 3 lakhs the duty of deciding which kind of building should be constructed may well be delegated to a committee as it has been done in this case and their decision cannot be be questioned on the ground that it has not proved acceptable to the entire body of the directors. That this argument cannot be accepted is made clear by Section 47, Trusts Act. The duty of buying property which has been selected by the entire body of directors can be delegated but not the duty of deciding which house in question should be purchased.

15. Having regard to my view on issue 2, it is not necessary to decide the question raised in issue 1. However as the question was argued, I shall record my opinion on it very briefly. The question is whether under Article 116-a(1-i) the purchase of house property would include within its meaning laying out: money in building houses. If the meaning that the framers of the articles of association intended to put on the expression 'purchase of house property' in Article 116 can be found out dearly from the language used by them in. some of the other articles of association, i.e., of the articles of association read as whole making the meaning of the expression clear, then I think effect should be given to that meaning; and we should not allow ourselves to be influenced by decisions which may have a general bearing on the point. In fact, in such a case there can be no room to look for guidance to decisions unless of course there are express decisions which have interpreted the meaning of this particular expression. The question is-not to be treated as an abstract proposition of law if there is clear indication; that the company intended that the expression should be understood in a particular manner. Ex. B is the memorandum and articles of association of the United India Life Assurance Co., Ltd. It cannot be disputed that it draws a distinction between the money of the share-holders and that of the policy-holders. Article 105. G dealing with the share-holders' money empowers the directors specifically to acquire or erect houses or buildings for the offices of the company or for transaction of its business, etc. Article 116 dealing with the money of the policy holders empowers the directors by a unanimous resolution to purchase house property. Is there no distinction between the powers given to the directors as regards the investment under this rule? I think there is. If the erection of houses was contemplated as an object of investment with regard to the money of the policy holders' trust fund, why did not those people who drew up the articles use the Same expression in Article 116-a(1-i). They were quite alive to the distinction between acquiring and erecting houses as may be seen from Article 105 and yet they used only the expression 'purchase of house property' when they drew up Article 116. Under Article 105(g) the directors may either buy house property or build a house; an alternative is allowed to them for the exercise of their discretion, but under Article 116, no such alternative is allowed to the directors; by a unanimous resolution they may invest money only in the purchase of house property. People conversant with building houses know that in actual practice house building is more speculative than buying houses; apparently those who drew up the articles wanted to safeguard the money belonging to the policy holders' Trust Fund with greater care than the money be-longing to the share holders. In this connection attention may also be drawn to Rule 175 of the articles which says that

the moneys and assets of the company other than those relating to the policy holders' Trust Fund shall be employed or invested in such manner and in such investments as the directors may, in the interests and for the purpose of the company, from time to time determine.

16. I am satisfied that a clear distinction between building houses and buying house property is indicated in the articles and that we should give effect to it in interpreting Article 116-a(1-i).

17. In support of his contention that building house is the same as buying house property Mr. Srinivasa Ayyangar relied upon Drake v. Trefusis (1875) 10 Ch. 364. That was a case under the Settled Estates Act, 1832. In that decision, speaking about the oases in which moneys arising under the Settled Estates Act or the Lands Clauses Act have been applied in what is not strictly a purchase of land, Sir W.M. James, L.J., observed:

We never intended however to go further than this, that the expending money in building a house on a vacant piece of ground forming part of the settled property is in substance the same thing as buying a house; and that money to be invested in the purchase of real estate may therefore be properly applied in the erection of new buildings.

18. This observation no doubt supports the appellants; but it must be remembered that it was made with reference to cases under the Settled Estates Act in which the question was what was meant by investing money in the purchase of land under the Act. And further to understand the true scope of this observation the case has to be considered in relation to a few other cases which arose under the Settled Estates Act, Lands Clauses Act, etc. In In re Newman's Settled Estate (1874) 9 Ch. 681, under the Settled Estates Act (19 and 20 Viet. Chap. 120), Section 23, money arising from timber cut under an order of the Court was ordered to be expended in erecting new farm building and other permanent improvements of the property. Whether it can be so held being a matter of some doubt to Sir George Jessel, M.R., he referred the matter to be heard by the Lord Justices. Sir William James pointed out that

the eases proceed on the principle that the erection of a building is substantially the same thing as the purchase of a new estate. No mischief can result from following these decisions.

19. Sir G. Mellish, L.J., held:

I think the authorities are too strong to be departed from. It would be mischievous to overrule such a course of decisions, though I am not prepared to say that, in the absence of authority, I should have decided the point in the same way.

20. It will be observed that it appeared doubtful whether on the language of the Act erection of a building would amount to the purchase of a new estate to the Master of the Rolls and Sir George Mellish; and further, Mellish, L.J., in the absence of authority was not prepared to say that he would have decided that both mean the same thing. In In re M.M. Bethlem Hospital (1876) 2 Ch. D. 522, Jessel, M.R. bad to consider a case under the Land Clauses Consolidation Act, and in that case he again referred to In re Newman's Settled Estates (1874) 9 Ch. 681, and pointed out that the Lord Justices held, following numerous decisions which they thought ought to be followed,

that expenditure in building was a purchase of real estate within the meaning of the Act, though not so according to the ordinary use of language.

21. The next case is the one in Drake v. Trefusis (1875) 10 Ch. 364, already referred to, a case strongly relied on by the appellants. In Venour v. Sellon (1876) 2 Ch. D. 522, Jessell, M.R., referring to Drake v. Trefusis (1875) 10 Ch. 364 and In re Newman's Settled Estates (1874) 9 Ch. 681 that those oases decided

that as regards money in Court under the Settled Estates Act and other Acts, the Court will not allow it to be laid out otherwise than in the purchase of land except in one case, viz., the building of a house; and it is difficult to see how that exception arose.

22. The decisions appeared to the learned Judge to be anomalous, but he thought that they should be followed without being extended any further. In Vine v. Raleigh (1891) 2 Ch. 13, the decision in Drake v. Trefusis (1875) 10 Ch. 364 was followed. The cases read together show that but for the principle of stare decisis which the learned Judge thought they should Act upon, not one of them was prepared to hold on the language of the Act that purchase of land and building of a house mean substantially the same thing. It may be said that these cases generally support the assumption that house building and buying house property are virtually the same. But this assumption was arrived at in construing the meaning of the term 'purchase of land' appearing in the Settled Estates Act; and so far as I understand the judgment the opinion is not based upon any general principle of construction, but on the expressions of opinion found in various judgments which the learned Judges thought they were bound to follow. That the conclusion was anomalous having regard to the language was clear to the minds of all the Judges and it was also stated, Drake v. Trefusis (1875) 10 Ch. 364, that the principle should not be extended any further. Having regard to these considerations, with very great respect I do |not think that these decisions should be relied on to show that house building means the same thing as the purchase of house property mentioned in Article 116 of the Articles of Association of the company. It may also be observed that it does not appear from the judgments referred to above that there were other provisions in the Acts which threw any light on the interpretation of the term 'purchase of land.' In the case before us I have already referred to the fact, which is very important, that Articles 105-G and 175 throw considerable light on the question we have to decide and. that Article 116 should be read along with these rules. That being so, there is no need to refer to any decisions at all in understanding the intention of those who drew up this article of association. For these reasons, I agree with the opinion of the lower Court, that the resolution of the Board of Directors passed on 12th October 1932, is ultra vires. In the result the appeal is dismissed with costs.

Jackson, J.

23. I agree that the appeal must be dismissed. The purchase of house property must be by the unanimous consent of the directors, and it is not sufficient compliance with that provision if they delegate to a sub-commit-tee the duty of buying a 'suitable house.' It is the duty of the directors to decide whether the house in question is suitable, and a sub-committee can only be employed to ascertain property, the purchase of which is to be sanctioned unanimously by the directors. The main duty cannot be delegated as made clear by Section 47, Trusts Act 2 of 1882; but in the regular course of business the subsidiary duty of purchasing a property which the directors have already decided to be suitable can be delegated to a sub committee.

24. It was argued that so long as the suitability could be subsequently ascertained by the sub-committee that suitability was sufficiently certain when the directors passed their general resolution to purchase suitable property within three lakhs. But the maxim certum est quod cerium reddi potest cannot be extended so far. The certainty must be on the face of the document and easily ascertained. One might purchase a house of which A holds the deeds. That is certain enough. But not a house which A may think suitable : cf. Broom's Legal Maxims, Edn. 9, at p. 400.

25. Therefore assuming that building a house is the same as purchasing a house, even then the action of the majority of the directors cannot be justified, because it requires a unanimous decision to purchase any specified house property. In this view of the case it is really unnecessary to consider whether building house property is the same as purchasing it. I would observe that 'purchase' is not a term of art (except in the context of purchase as opposed to inheritance] and it means no more than the acquisition of house property. There is no real distinction between acquiring by building and acquiring by buying. One need not be more speculative than the other, and the requirement of the trust is satisfied if its funds are invested in this class of property. The directors have been specifically authorized to erect buildings out of the company's funds apart from the trust, but the succinct 'phrase purchase of house property' in the trust provisions does not necessarily imply that they may not erect buildings, with trust funds, so long as purchase includes both building and buying.

26. The point has never directly come up for decision; but a question has often, arisen in the English Courts whether funds which under the Settled Estates Act, 19, 20 Vic. Ch. 120 can only be applied to the purchase of land can be devoted to purchasing new or repairing old buildings. In 1874 In re Newman Settled Estates (1874) 9 Ch. 681, the trustees petitioned under the Act to be allowed to cut and sell timber and apply the proceeds to improving the property...to building new granaries and to repairing farms. Sir W.M. James, L.J., ruled:

the oases proceed on the principles that the erection of a building is substantially the same thing as the purchase of a new estate. The order may be taken as asked.

27. Mellish, L.J., demurred; but considered the authorities too strong to be departed from. In In re Bethelem Hospital (1875) 19 Eq. 457, on 27th February 1875, the Master of the Rolls comments upon In re Newman's Settled Estates (1874) 9 Ch. 681 and says:

The opinion of the Lord Justices was that these numerous decisions ought to be followed, and they held that expenditure in building was a purchase of real estate within the meaning of the Act, though not so according to the ordinary use of language.

28. Something to that effect may have fallen from the Bench when In re Newman's Settled Estates (1874) 9 Ch. 681 was heard, but it is not in the report, and when this same case was cited before Sir W.M. James, L.J., in Drake v. Trefusis (1875) 10 Ch. 364, on 22nd March 1875, he confined himself to saying:

We never intended to go further than this that in substance building a house on vacant ground forming part of the settled property is the same thing as buying a house, and money to be invested in the purchase of real estate may be properly applied in the erection of new buildings. Repairs and permanent improvements do not come within this principle.

29. Next year, in 1876, Vennur v. Solloo (1876) 2 Ch. D. 522, the Master of the Bolls had to consider whether under the Act funds could be applied to drains. He thought it anomalous to allow the building of a house as a purchase, but not the building of a part of a house. However he was bound by Drake v. Trefusis (1875) 10 Ch. 364 and followed that ruling. Evidently the Master of the Rolls took personal exception to building a house being treated as buying a house. It is not clear to what Mellish, L. J., demurred in In re Newman's Settled Estates (1874) 9 Ch. 681. It may have been the inclusion of drainage which was negatived in Drake v. Trefusis (1875) 10 Ch. 364, or he may have been in agreement with the Master of the Rolls.

30. In 189l, Chitty, J., observed in Vina v. Raliegh (1891) 2 Ch. 13, that the fund which is liable to be invested in land may not be laid out in improvement except in cases where the improvement is in the erection of buildings, in accordance with the principle finally settled in Drake v. Trefusis (1875) 10 Ch. 364 and when this judgment came up on appeal, Kay, L. J., also said Drake v. Trefusis (1875) 10 Ch. 364, has decided that spending money in erecting new buildings is the same thing as buying land. Therefore this much is clear, that English authority has consistently proceeded on the general assumption that building and buying house property are substantiallyi the same; and by light of that assumption the Settled Estates Act has been administered. The authorities have not interpreted some clauses of the Act to mean that building and buying are the same, but confronted with the terms of the Act they have found independently of the Act itself that buying includes building. If the same authorities had been confronted with the terms of the present trust they would presumably have followed the same independent line of thought and would have come to the same conclusion.

31. With that conclusion, I respectfully agree because I think there is no real difference between commissioning a contractor to build a house, and promising to buy it from him after it is built. If the directors had obtained a definite plan and estimate from their architects and unanimously approved it, and ordered the work to proceed, I do not think the Court need have interfered.


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